McGinn, Smith could get life

Prosecution asks judge for maximum sentence

Brendan J. Lyon, Times Union

By Brendan J. Lyons

Updated 9:54 pm, Thursday, July 25, 2013

From left, Attorneys William Dreyer and E. Stewart Jones arrive to the U.S. District Courthouse with their clients Timothy McGinn and David Smith Friday Jan. 27, 2012 in Albany, N.Y. (Lori Van Buren / Times Union)

From left, Attorneys William Dreyer and E. Stewart Jones arrive to...

David Smith arrives for his arraignment at the U.S. District Courthouse Friday, Jan. 27, 2012, in Albany, N.Y. (Lori Van Buren / Times Union)

David Smith arrives for his arraignment at the U.S. District...

Timothy McGinn, right, and David Smith, left, leave the U.S. District Courthouse following their arraignment for fraud Friday, Jan. 27, 2012, in Albany, N.Y. (Lori Van Buren / Times Union)

Timothy McGinn, right, and David Smith, left, leave the U.S....

Timothy McGinn, right, and David Smith leave the U.S. District Courthouse after their arraignment for fraud Friday Jan. 27, 2012 in Albany, N.Y. (Lori Van Buren / Times Union)

In a sentencing memorandum filed Wednesday, assistant U.S. Attorney Elizabeth C. Coombe said the maximum term of imprisonment is warranted by factors that include more than $30 million in losses to at least 250 victims. She said the defendants' argument that their misdeeds were caused by a collapsing financial market "misses the mark."

"After persuading investors to part with their money, defendants used it as if it were their own. Not only did they secretly skim large percentages of investor funds to line their own pockets, but they did their very best to make sure that the investments would keep coming in by using new investor money to pay old investors," Coombe wrote in a 13-page memorandum addressed to U.S. District Judge David N. Hurd.

The government also filed a motion seeking $30.2 million in forfeiture penalties from McGinn and Smith, whose bank accounts and assets were frozen three years ago under court orders. It's unclear that they have the assets to pay the proposed penalty.

The judge allowed Smith's attorney, William J. Dreyer and McGinn's attorney, E. Stewart Jones, to file their sentencing memorandums under seal. Jones had previously said the defense memorandums would include numerous letters of support as part of a plea to the judge for leniency.

McGinn, 64, and Smith, 68, have been free on bond after they were convicted by a federal jury in February. Their sentencings are scheduled for Aug. 7 in Utica.

McGinn will be sentenced at 10 a.m. and Smith at 2 p.m. that day, according to the court's schedule.

McGinn and Smith co-founded their Albany brokerage, McGinn, Smith & Co., more than 30 years ago, and built a clientele that included some of the region's wealthiest residents. But court records indicate that their clients also included many people with moderate assets and whose savings were wiped out when the firm shut down at the end of 2009.

In April 2010, federal agents raided the homes and offices of McGinn and Smith here and in Florida.

That same month, the SEC filed a civil complaint accusing McGinn, Smith and their various investment entities of securities fraud. A federal grand jury in Albany began reviewing evidence in early 2010 and heard testimony from about 40 witnesses for almost two years before McGinn and Smith were indicted in January 2012.

The crimes for which they were convicted carry sentences of up to 20 years in prison. However, the Justice Department said federal sentencing guidelines call for life sentences because of aggravating factors that include the high amount of losses, number of victims and the sophisticated nature of the Ponzi-like scheme.

Smith and McGinn blamed an economic collapse in 2008 and poor recordkeeping for a series of financial misdeeds that government regulators, in a separate civil case, have said left hundreds of investors defrauded of up to $136 million.

Coombe, in the government's sentencing memorandum, said McGinn and Smith cannot blame economic conditions, in part, because they "concealed their fraud by directing the creation of false accounting entries. They also directed the movement of money in a circuitous manner to cover their tracks."